Greg Kilminster
Head of Product - Content
MAS plans for commercial adoption of tokenisation
The Monetary Authority of Singapore (MAS) has unveiled a strategic initiative aimed at advancing the commercial adoption of asset tokenisation within the financial sector. The plan involves enhancing liquidity, developing market infrastructure, establishing industry frameworks, and introducing a centralised settlement facility to drive confidence and efficiency in tokenised transactions.
Some context
Asset tokenisation, the process of converting ownership rights of physical and financial assets into digital tokens, is gaining traction globally for its potential to improve liquidity, transparency, and efficiency. Through Project Guardian, MAS brought together more than 40 financial institutions and international policymakers to explore asset tokenisation across capital markets, conducting more than 15 industry trials in six currencies. MAS’s initiatives represent a substantial move towards broad-based adoption and integration of tokenised assets in financial markets, with major banks and industry stakeholders actively involved.
Key takeaways
- Enhancing liquidity via commercial networks: MAS is advancing tokenised asset liquidity by encouraging the formation of commercial networks. Notably, the Guardian Wholesale Network, comprising Citi, HSBC, Schroders, Standard Chartered, and UOB, has been formed to connect products and services across multiple currencies and assets. This coordinated approach is expected to improve capital raising, trading, asset servicing, and settlement of tokenised assets.
- Building infrastructure for seamless transactions: MAS’s Global Layer One (GL1) initiative, launched in 2023, is focused on creating digital infrastructure that enables seamless cross-border transactions of tokenised assets. A core group of banks, including BNY, Citi, JP Morgan, MUFG, and Societe Generale-FORGE, are working to establish governance and compliance frameworks to safeguard market integrity. With Euroclear and HSBC joining GL1, a new working group will focus on setting standards and facilitating interoperability across different digital asset systems.
- Industry frameworks for implementation: MAS is supporting the industry-wide implementation of asset tokenisation through two new frameworks developed under Project Guardian. The Guardian Fixed Income Framework (GFIF) integrates tokenisation standards from major associations, offering guidance on applying tokenisation in debt capital markets. The Guardian Funds Framework (GFF) provides recommendations for best practices in tokenised funds, simplifying the creation and settlement of new investment vehicles.
- Centralised settlement facility for tokenised assets: To improve confidence in tokenised asset transactions, MAS is facilitating access to a common settlement facility. Initially focused on the Singapore dollar (SGD) wholesale central bank digital currency (CBDC), the SGD Testnet will enable issuance, transfer, and redemption of digital currency with features that support automation and interoperability with existing infrastructures. DBS, OCBC, Standard Chartered, and UOB are among the first institutions to participate in the test, covering use cases such as payments and securities settlement.
Next steps
MAS anticipates this approach will help position Singapore as a leader in advancing tokenisation within the financial sector. With continued collaboration across industry players, the MAS initiative seeks to unlock new efficiencies in capital markets, paving the way for a broader integration of digital assets.
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MAS publishes report outlining AML expectations
The Monetary Authority of Singapore (MAS) has released a report detailing its supervisory expectations for anti-money laundering and counter-terrorism financing (AML/CFT) measures following recent inspections of financial institutions (FIs). The guidance focuses on improving compliance in customer due diligence, monitoring, and risk management practices, with an emphasis on maintaining Singapore’s reputation as a trusted financial centre.
Some context
In recent years, regulatory authorities have heightened scrutiny over AML/CFT compliance amid significant evolving risks. MAS’s latest inspections identified areas where FIs need to enhance controls to better detect and mitigate money laundering and terrorism financing (ML/TF) risks. The report highlights both supervisory expectations and examples of effective practices, offering FIs a roadmap for strengthening AML/CFT frameworks.
Key takeaways
- Customer risk assessment: MAS expects FIs to account for ML/TF risks related to customers with multiple nationalities, especially those obtained through citizenship-by-investment schemes. FIs should verify all current and previous nationalities to enhance their customer risk assessment frameworks and perform targeted due diligence to address potential identity discrepancies. Institutions should also regularly review these frameworks to keep pace with emerging risk typologies.
- Detection of red flags: MAS calls on FIs to train staff to recognise and escalate material red flags in customer documents and representations. Potential issues such as inconsistencies in personal or business details should prompt further investigation. MAS also encourages FIs to use technology solutions capable of identifying unusual patterns in financial data, further supporting the detection of potentially fraudulent documents.
- Source of wealth (SOW) verification: For high-risk customers, including politically exposed persons (PEPs) and private banking clients, MAS expects FIs to implement rigorous SOW checks, including gathering documentation and independently corroborating customer claims. Additional scrutiny is recommended for SOW derived from gifts or business interests, where verification methods should include documented relationships and financial statements. This approach helps ensure that customers' declared wealth aligns with their profiles and risk levels.
- Risk mitigation measures post-STR filing: MAS advises that FIs implement effective risk mitigation measures when a suspicious transaction report (STR) is filed, or when suspicions arise about ML/TF risks. These measures could include enhanced monitoring, account restrictions, or even account closure if necessary. MAS recommends senior management oversight in these cases to ensure that mitigation actions are timely and proportionate.
- Holistic monitoring of accounts: Cross-departmental information sharing within FIs is critical to improving oversight of higher-risk accounts. The report highlights the importance of consolidating information from different business units, allowing a more complete view of customer activities. This holistic approach enables FIs to identify potential issues more effectively, enhancing overall AML/CFT vigilance.
Next steps
MAS’s guidance emphasises the importance of a proactive approach to AML/CFT compliance. FIs are encouraged to assess their current practices against MAS’s expectations, addressing any gaps in a proportionate manner. By strengthening internal policies, training staff, and utilising technology, FIs can reinforce their AML/CFT controls and continue to contribute to Singapore’s standing as a resilient and trusted financial hub.
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PRA publishes latest regulatory Digest
The UK’s Prudential Regulation Authority has published its latest Regulatory Digest which summarises its monthly activity for October. Highlights from the digest are as follows.
- Competing for growth – a speech by Sam Woods: In this speech Sam Woods explains how the PRA is supporting the UK’s economic growth and international competitiveness, while maintaining financial stability.
- PS17/24 – Responses to CP6/24: OCP policy statement: This policy statement provides feedback to responses the PRA received to consultation paper (CP) 6/24 – Occasional consultation paper: April 2024. It also contains the PRA’s final policy.
- CP13/24 – Remainder of CRR: Restatement of assimilated law: This CP sets out the PRA’s proposals to restate the relevant provisions in the assimilated Capital Requirements Regulation No 575/2013 in the PRA Rulebook and other policy material such as supervisory statements or statements of policy.
- CP14/24 – Large Exposures Framework: The prudential framework for large exposures (LE) complements the risk-weighted capital requirements by aiming to protect firms from large losses resulting from the sudden default of a single counterparty or groups of connected counterparties. As a result, it helps to maintain and enhance the safety and soundness of firms and the financial system within which they operate. This CP sets out the PRA’s proposals to implement the remaining Basel large exposures standards.
- CP12/24 – Resolution assessments: Amendments to reporting and disclosure dates: This CP sets out the PRA’s proposal to make amendments to PRA rules and expectations in respect of firms’ reporting and disclosure obligations pertaining to resolution assessments.
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